COSCO CORPORATION (SINGAPORE) LIMITED (Incorporated in the Republic of Singapore) (Company Registration Number: G)

Transcription

1 CIRCULAR DATED 11 MAY 2006 THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you are in any doubt as to the course of action you should take, you should consult your stockbroker, bank manager, solicitor, accountant or any other professional adviser immediately. If you have sold or transferred all your shares in the capital of COSCO Corporation (Singapore) Limited (the Company ), you should forward this Circular with the Notice of Extraordinary General Meeting and the accompanying Proxy Form immediately to the purchaser or transferee or to the bank, stock broker or other agent through whom the sale was effected for onward transmission to the purchaser or transferee. The Singapore Exchange Securities Trading Limited ( SGX-ST ) assumes no responsibility for the correctness of any of the statements made, opinions expressed or reports contained in this Circular. COSCO CORPORATION (SINGAPORE) LIMITED (Incorporated in the Republic of Singapore) (Company Registration Number: G) CIRCULAR TO SHAREHOLDERS in relation to the PROPOSED SALE OF FOUR VESSELS BY COSCO (SINGAPORE) PTE LTD, A WHOLLY-OWNED SUBSIDIARY OF THE COMPANY, TO SHENZHEN OCEAN SHIPPING CO. LTD AND COSCO INTERNATIONAL TRADING COMPANY, CHINA Independent Financial Adviser to the Independent Directors KIM ENG CAPITAL PTE. LTD. (Incorporated in the Republic of Singapore) (Company Registration Number: C) IMPORTANT DATES AND TIMES Last date and time for lodgement of Proxy Form : 24 May 2006 at a.m. Date and time of Extraordinary General Meeting : 26 May 2006 at a.m. Place of Extraordinary General Meeting : Pan Pacific Hotel, Singapore 7 Raffles Boulevard, Marina Square, Pacific 3, Level 1, Singapore

2 CONTENTS Page DEFINITIONS... 3 LETTER TO SHAREHOLDERS 1. INTRODUCTION INFORMATION ON THE VESSELS SUMMARY OF MATERIAL TERMS OF THE PROPOSED SALE OVERVIEW OF THE DRY BULK SHIPPING INDUSTRY RATIONALE FOR AND BENEFITS OF THE PROPOSED SALE USE OF PROCEEDS FINANCIAL EFFECTS OF THE PROPOSED SALE INTERESTS OF CONTROLLING SHAREHOLDER, SUBSTANTIAL SHAREHOLDERS AND DIRECTORS INDEPENDENT FINANCIAL ADVISER STATEMENT OF THE AUDIT COMMITTEE DIRECTORS RECOMMENDATION EXTRAORDINARY GENERAL MEETING ACTIONS TO BE TAKEN BY SHAREHOLDERS CONSENTS DOCUMENTS AVAILABLE FOR INSPECTION DIRECTORS RESPONSIBILITY STATEMENT APPENDIX A LETTER FROM THE IFA TO THE INDEPENDENT DIRECTORS APPENDIX B CERTIFICATES OF VALUATION NOTICE OF EXTRAORDINARY GENERAL MEETING PROXY FORM 2

3 DEFINITIONS The following definitions will apply throughout this Circular unless otherwise stated:- Group Companies Company : COSCO Corporation (Singapore) Limited CSPL : COSCO (Singapore) Pte Ltd, a wholly-owned subsidiary of the Company Group : The Company and its subsidiaries Other companies, organisations and person(s) CDP : The Central Depository (Pte) Limited China Ocean Shipping : China Ocean Shipping (Group) Company, the Controlling Shareholder of the Company COSCO Hong Kong : COSCO (H.K.) Shipping Co., Limited, the guarantor of the Purchasers under the MOAs COSCO International Trading : COSCO International Trading Company, China, one of the Purchasers under the MOAs CPF : The Central Provident Fund KEC or the IFA : Kim Eng Capital Pte. Ltd., the independent financial adviser to the Independent Directors SGX-ST : Singapore Exchange Securities Trading Limited Shenzhen Ocean Shipping : Shenzhen Ocean Shipping Co., Ltd, one of the Purchasers under the MOAs SSY : Simpson Spence and Young Ltd, independent valuer of the Vessels General approved exchange : A stock exchange that has rules which safeguard the interests of shareholders against interested person transactions according to similar principles to Chapter 9 of the Listing Manual associate : (i) In relation to any director, chief executive officer, substantial shareholder or controlling shareholder (being an individual) means:- (a) (b) (c) his immediate family; the trustees of any trust of which he or his immediate family is a beneficiary or, in the case of a discretionary trust, is a discretionary object; or any company in which he and his immediate family together (directly or indirectly) have an interest of 30% or more 3

4 DEFINITIONS (ii) In relation to a substantial shareholder or a controlling shareholder (being a company) means any other company which is its subsidiary or holding company or is a subsidiary of such holding company or one in the equity of which it and/or such other company or companies taken together (directly or indirectly) have an interest of 30% or more Banking Day : Days on which banks are open both in USA (being the country of the currency stipulated for the Consideration in the MOAs) and in Singapore (being the place of closing stipulated in the MOAs) Companies Act : The Companies Act (Cap. 50) of Singapore, as amended or modified from time to time Completion : The completion of the sale and purchase and delivery of the relevant Vessel under the terms and conditions of the relevant MOA Consideration : The aggregate consideration payable by the Purchasers to CSPL for the purchase of the Vessels as set out in Section 3 of this Circular control : The capacity to dominate decision-making, directly or indirectly, in relation to the financial and operating policies of a company Controlling Shareholder : A person who:- (i) (ii) holds directly or indirectly 15% or more of the nominal amount of all voting shares in the Company (unless the SGX-ST determines that such a person is not a Controlling Shareholder of the Company); or in fact exercises control over the Company Deletion Certificate : Certificate issued by the relevant maritime authority certifying that the respective Vessel has been deleted from the respective authority s jurisdiction and that at the time of the deletion the respective Vessel is free from encumbrances Directors : The directors of the Company as at the date of this Circular EGM : The extraordinary general meeting of Shareholders, notice of which is set out on page 37 of this Circular entity at risk : Refers to:- (i) (ii) (iii) the listed company; a subsidiary of the listed company that is not listed on the SGX-ST or an approved exchange; or an associated company of the listed group that is not listed on the SGX-ST or an approved exchange, provided that the listed group, or the listed group and its interested person(s), has control over the associated company 4

5 DEFINITIONS FY : Financial year ended 31 December or, as the case may be, ending 31 December Independent Directors : The Directors who are considered independent for the purpose of the Proposed Sale, namely, Mr Tom Yee Lat Shing, Mr Er Kwong Wah and Dr Wang Kai Yuen interested person : Refers to:- (i) (ii) a director, chief executive officer or controlling shareholder of the listed company; or an associate of any such director, chief executive officer or controlling shareholder Latest Practicable Date : 5 May 2006, being the latest practicable date prior to the printing of this Circular Listing Manual : The listing manual of the SGX-ST MOAs : Collectively MOA 1, MOA 2, MOA 3 and MOA 4; and MOA means any one of them, where:- NTA : Net tangible assets PRC : Peoples Republic of China MOA 1 means the memorandum of agreement dated 27 March 2006 entered into between CSPL as seller and Shenzhen Ocean Shipping and COSCO International Trading as Purchasers for the sale and purchase of M/V Sea Phoenix; MOA 2 means the memorandum of agreement dated 27 March 2006 entered into between CSPL as seller and Shenzhen Ocean Shipping and COSCO International Trading as Purchasers for the sale and purchase of M/V Sea Crane; MOA 3 means the memorandum of agreement dated 27 March 2006 entered into between CSPL as seller and Shenzhen Ocean Shipping and COSCO International Trading as Purchasers for the sale and purchase of M/V Jurong Sea; and MOA 4 means the memorandum of agreement dated 27 March 2006 supplemented by an addendum dated 13 April 2006 entered into between CSPL as seller and Shenzhen Ocean Shipping and COSCO International Trading as Purchasers for the sale and purchase of M/V Cos Angel Proposed Sale : The proposed sale by CSPL of the Vessels to Shenzhen Ocean Shipping and COSCO International Trading pursuant to the MOAs Purchasers : Collectively Shenzhen Ocean Shipping and COSCO International Trading as purchasers of the Vessels under the MOAs; and Purchaser means any one of them Shares : Ordinary shares in the capital of the Company 5

6 DEFINITIONS Shareholders : Persons (other than CDP) who are registered as holders of Shares in the Register of Members of the Company and Depositors who have Shares entered against their names in the Depository Register Sub-division of shares : The sub-division of each ordinary share in the capital of the Company into two ordinary shares in the capital of the Company as approved by Shareholders on 17 January 2006 Substantial Shareholder : A person who holds directly or indirectly 5% or more of the total issued share capital of the Company USA : The United States of America Valuation Certificates : The valuation certificates dated 23 March 2006 on the Vessels, by the independent valuers, SSY and attached as Appendix B to this Circular Vessels : Collectively, M/V Sea Phoenix, M/V Sea Crane, M/V Jurong Sea and M/V Cos Angel; and Vessel means any one of them Units of Measurement, Currencies and Countries cents : Singapore cents dwt : Dead weight tonne $ : Singapore dollars tonne : Metric tonne, a measurement of weight (equivalent to 1,000 kilogrammes) US$ : United States dollars % or per cent. : Per centum or percentage The terms Depositor and Depository Register shall have the same meanings ascribed to them, respectively in Section 130A of the Companies Act. Words importing the singular shall, where applicable, include the plural and vice versa and words importing the masculine gender shall, where applicable, include the feminine and neuter gender and vice versa. References to persons shall, where applicable, include corporations. Any reference in this Circular to any enactment is a reference to that statute or enactment for the time being amended or re-enacted. Any term defined under the Companies Act or the Listing Manual or any statutory modification thereof and used in this Circular shall, where applicable, have the meaning assigned to it under the Companies Act or the Listing Manual or any statutory modification thereof, as the case may be, unless otherwise provided. Any reference to a time of day in this Circular shall be a reference to Singapore time unless otherwise stated. 6

7 LETTER TO SHAREHOLDERS COSCO CORPORATION (SINGAPORE) LIMITED (Incorporated in the Republic of Singapore) (Company Registration Number: G) Directors:- Registered Office:- Capt. Wei Jia Fu (Chairman) 9 Temasek Boulevard Mr Ji Hai Sheng (Vice Chairman and President) #07-00 Mr Min Jian Guo Suntec City Tower II Mr Li Jian Hong Singapore Mdm Sun Yue Ying Mr Wang Xing Ru Dr Wang Kai Yuen (Independent Director) Mr Tom Yee Lat Shing (Independent Director) Mr Er Kwong Wah (Independent Director) Mr Lu Cheng Gang (Alternate Director to Capt. Wei Jia Fu) Mr Li Jian Xiong (Alternate Director to Mr Li Jian Hong) Mr Ye Bin Lin (Alternate Director to Mdm Sun Yue Ying) Mr Liu De Tian (Alternate Director to Mr Wang Xing Ru) 11 May 2006 To: The Shareholders of COSCO Corporation (Singapore) Limited Dear Sir/Madam PROPOSED SALE OF FOUR VESSELS BY COSCO (SINGAPORE) PTE LTD, A WHOLLY-OWNED SUBSIDIARY OF THE COMPANY, TO SHENZHEN OCEAN SHIPPING CO. LTD AND COSCO INTERNATIONAL TRADING COMPANY, CHINA 1. INTRODUCTION 1.1 Background On 28 March 2006, the Directors announced that the Company s wholly-owned subsidiary, CSPL, had on 27 March 2006, entered into the MOAs with Shenzhen Ocean Shipping and COSCO International Trading for the sale of the Vessels for an aggregate consideration of US$34,000,000 (equivalent to approximately S$55,049,400 based on the relevant exchange rate of US$1.00:S$ as at 27 March 2006, being the date of the MOAs). The Consideration will be satisfied entirely in cash. Pursuant to the MOAs, Shenzhen Ocean Shipping and COSCO International Trading have agreed to purchase from CSPL the Vessels namely M/V Sea Phoenix, M/V Sea Crane, M/V Jurong Sea and M/V Cos Angel. Further details of the Vessels are set out in Section 3.1 of this Circular. Shenzhen Ocean Shipping and COSCO International Trading are companies incorporated in the PRC. Shenzhen Ocean Shipping is principally engaged in the business of shipping and ship chartering, and COSCO International Trading is principally engaged in the business of general trading, import and export. As at the Latest Practicable Date, China Ocean Shipping directly and indirectly holds 100.0% and 50.0% of the registered capital of Shenzhen Ocean Shipping and COSCO International Trading respectively. The remaining shareholder of COSCO International Trading is Petro China Company, which is an unrelated third party. 7

8 LETTER TO SHAREHOLDERS 1.2 Listing Manual and Shareholders Approval Under Rule 906 of the Listing Manual, the Company is required to obtain the approval of Shareholders if it proposes to enter into an interested person transaction of a value equal to or more than 5% of the latest audited NTA of the Group. A transaction will constitute an interested person transaction if it is entered into between an entity at risk and an interested person. As at the Latest Practicable Date, the Company holds 100.0% of the shares in CSPL, which renders CSPL an entity at risk. As at the Latest Practicable Date, China Ocean Shipping holds 54.12% of the Shares in the Company and is a Controlling Shareholder of the Company. Further details of the shareholding interest of China Ocean Shipping are set out in Section 8 of this Circular. As at the Latest Practicable Date, China Ocean Shipping directly and indirectly holds 100.0% and 50.0% of the registered capital of Shenzhen Ocean Shipping and COSCO International Trading respectively. Shenzhen Ocean Shipping and COSCO International Trading are as such considered associates of China Ocean Shipping, and are therefore considered to be interested persons within the meaning of Chapter 9 of the Listing Manual. As the Proposed Sale is between CSPL, an entity at risk, and interested persons, namely Shenzhen Ocean Shipping and COSCO International Trading, it is considered an interested person transaction within the meaning of Chapter 9 of the Listing Manual. Based on the Group s audited financial statements as at 31 December 2005, its NTA was approximately S$510.3 million and 5% of its latest audited consolidated NTA would be approximately S$25.5 million. As the Consideration of approximately S$55.0 million exceeds 5% of the latest audited consolidated NTA of the Group as at 31 December 2005, approval of the Shareholders for the Proposed Sale is therefore required pursuant to Rule 906 of the Listing Manual. Further under Rule 906(b) of the Listing Manual, other transactions with the same interested person during the same financial year are to be aggregated. On 9 January 2006, the Company announced that its subsidiary, COSCO (Dalian) Shipyard Co., Ltd ( CSG Dalian ), had entered into an agreement on 6 January 2006 with Dalian Ocean Shipping Co., Ltd ( DOS ) wherein DOS will invest in a 2.6% equity interest in CSG Dalian (the Dalian Investment ). The Dalian Investment will carry a transaction value of approximately S$4.3 million as announced by the Company on 9 January As China Ocean Shipping holds 100.0% of the registered capital of DOS, the Dalian Investment is considered an interested person transaction with the same interested person, China Ocean Shipping. Hence, the Consideration for the Proposed Sale and transaction value of the Dalian Investment, in aggregate, amounts to approximately S$59.3 million which will also exceed 5% of the Group s latest audited consolidated NTA of S$25.5 million. 1.3 Purpose of this Circular The purpose of this Circular is to provide Shareholders with information with respect to the Proposed Sale and to seek Shareholders approval at the EGM for the Proposed Sale, the resolution of which is set out in the Notice of EGM on page 37 of this Circular. 8

9 LETTER TO SHAREHOLDERS 2. INFORMATION ON THE VESSELS The Vessels comprise two Panamax class and two Handymax class motor bulk carriers which are mainly used to transport dry bulk cargo such as iron ore, coal, steel, cement and fertiliser. The Vessels ply along international routes or along main shipping routes. These routes are usually from China to the key ports in the USA, Europe, South America and South Africa. The Vessels are part of the Group s fleet of 16 vessels as at the Latest Practicable Date. Further details of the Vessels are as follows:- Net book value Year Place of as at Name of Vessel Type Capacity Built Age Registration 31 December 2005 (dwt) (Years) (US$) M/V Sea Phoenix Handymax 40, Liberia 5,058,319 M/V Sea Crane Handymax 46, Singapore 5,552,844 M/V Jurong Sea Panamax 69, Singapore 4,484,372 M/V Cos Angel Panamax 65, Singapore 4,691,467 19,787, SUMMARY OF MATERIAL TERMS OF THE PROPOSED SALE 3.1 The Vessels Pursuant to the MOAs, the Vessels are to be transferred from CSPL to Shenzhen Ocean Shipping and COSCO International Trading free from all charters, encumbrances, mortgages and maritime liens or any other debts. CSPL will also undertake to indemnify the Purchasers against all consequences of claims made against the Vessels which have been incurred prior to the time of delivery. CSPL will deliver the Vessels to the Purchasers with everything belonging to each respective Vessel on board and on shore. This will include all spare parts and spare equipment belonging to each respective Vessel used or unused at the time of inspection. However, spares that are on order will be excluded. The radio installation and navigational equipment of each respective Vessel shall also be transferred to the Purchasers. The Purchasers will also take over the remaining bunkers and unused lubricating oils in storage tanks and seal drums at the time of delivery and pay as per the average of Singapore market price prevailing seven days prior to the date of the notice of readiness for delivery is tendered by CSPL. The Purchasers will also pay for the remaining unused lubricants in sealed drums or unbroached barrels/drums or in dedicated storage tanks at net invoices prices paid by CSPL less discounts and delivery costs. The exact quantities of bunkers and lubricants shall be measured by an independent surveyor nominated by the Purchasers. Pursuant to four letters of guarantee issued by COSCO Hong Kong, a wholly-owned subsidiary of China Ocean Shipping, COSCO Hong Kong has guaranteed to fulfil the obligations of the Purchasers under the MOAs without requesting CSPL to take further action first against the Purchasers. 9

10 LETTER TO SHAREHOLDERS 3.2 Consideration Under the terms of the MOAs, CSPL will sell the Vessels to Shenzhen Ocean Shipping and COSCO International Trading for an aggregate cash consideration of US$34,000,000 (equivalent to approximately S$55,049,400 based on the relevant exchange rate of US$1.00:S$ as at 27 March 2006, being the date of the MOAs). The Consideration is apportioned as follows:- Vessel M/V Sea Phoenix M/V Sea Crane M/V Jurong Sea M/V Cos Angel Total Consideration US$8,420,000 US$9,240,000 US$8,000,000 US$8,340,000 US$34,000,000 CSPL had engaged SSY, an independent shipbroking group, to undertake an independent valuation of the Vessels. The approximate market valuation of the Vessels as stated in the Valuation Certificates issued by SSY is as follows:- Vessel M/V Sea Phoenix M/V Sea Crane M/V Jurong Sea M/V Cos Angel Total Market Valuation US$9,000,000 US$9,500,000 Between US$7,750,000 and US$8,000,000 Between US$7,500,000 and US$7,750,000 Between US$33,750,000 and US$34,250,000 The above valuation is made on the basis that the Vessels are in good condition, safely afloat and for prompt charter-free delivery for cash on normal commercial terms as between willingsellers and willing-buyers. The valuation was also made on the basis of comparison with recent prices achieved in the market for similar tonnage. In cases where there is a lack of such representative sales, the estimated valuation is made by taking into account the perceived market levels at the relevant time. The Consideration of US$34,000,000 was arrived at on a willing-buyer-willing-seller basis at a price mutually agreed between CSPL and the Purchasers, taking into account, inter alia, the valuation of the Vessels as described above. Other factors considered by CSPL in arriving at the Consideration include the following:- (a) (b) the potential cost savings which the Group may achieve from the sale of the Vessels, such costs include maintenance and insurance; and the potential cost savings which the Group may achieve from the sale of the Vessels in a single transaction to the Purchasers as compared to separate sale of individual Vessels. 10

11 LETTER TO SHAREHOLDERS The Consideration payable by the Purchasers to CSPL shall be satisfied in cash as follows:- (a) (b) the Purchasers shall pay a deposit of 10% of the Consideration which amounts to US$3,400,000 within three Banking Days after the signing of the MOAs; and the balance of the Consideration shall be paid no later than three Banking Days after the respective Vessel is in every respect physically ready for delivery in accordance with the terms and conditions of the MOAs and notice of readiness for delivery tendered by CSPL. 3.3 Conditions of the MOA The Proposed Sale shall be subject to, inter alia, the following conditions being satisfied:- (a) (b) (c) (d) (e) (f) the approval of Directors being obtained for the Proposed Sale; the approval of Shareholders being obtained for the Proposed Sale; consent from the relevant Vessel s authority (being the Maritime and Port Authority of Singapore or Liberian Authorities as the case may be) that they have no objection for the sale of the vessel; the delivery of the Vessels be delivered in substantially the same condition as at the time of their respective inspection to a safe and accessible berth or anchorage at CSPL s option within the Singapore / Japan range; confirmation from CSPL that, to the best of its knowledge, the Vessels are not blacklisted by any nation, union or party; the delivery of relevant documentation by CSPL to the Purchasers including, inter alia:- (i) (ii) (iii) documents as may reasonably be required by authorities for the purpose of registering the relevant Vessel; classification certificates and plan with all available drawings, instruction books and manuals; transcript of register issued by the relevant Vessel s authority that the Vessel is free from encumbrances, maritime liens and any other debts at the time of delivery; and (g) undertaking from CSPL to send within 30 days after delivery of the relevant Vessel the Vessel s Deletion Certificate issued by the Vessel s authority certifying that the Vessel has been deleted from the Singapore or Liberia, as the case may be. As at the Latest Practicable Date, condition (a) above has been satisfied. 11

12 LETTER TO SHAREHOLDERS 3.4 Termination Events The MOAs may be terminated upon the occurrence of certain events including, inter alia:- (a) (b) (c) (d) default by the Purchasers should the Consideration not be paid in accordance to the MOAs; default by CSPL should it fail to give the notice of readiness for delivery in accordance to the MOAs; at the option of the Purchasers on the date of cancelling upon the expiry of the expected time of delivery of each respective Vessel; or non-fulfilment of a condition precedent. 3.5 Completion Completion of the respective MOAs shall take place upon the tender of the notice of readiness for delivery by CSPL to the Purchaser and the delivery of the respective Vessel to the Purchasers at a safe and accessible berth at Singapore / Japan range. According to the MOAs, the expected delivery dates of each respective Vessel are as follows:- Vessel Expected Delivery Date M/V Cos Angel Between 30 April 2006 and 9 July 2006 M/V Jurong Sea Between 30 April 2006 and 30 August 2006 M/V Sea Crane Between 30 June 2006 and 30 September 2006 M/V Sea Phoenix Between 30 June 2006 and 30 September OVERVIEW OF THE DRY BULK SHIPPING INDUSTRY The dry bulk shipping industry suffered a sharp falling trend in the first half of 2005 mainly due to a decrease in seaborne trade and an increase in the release of bulk carriers into the market. The Baltic Dry Index ( BDI ), which assesses the price of transporting the major raw materials by sea, had fallen by approximately 71.9% from its high in December 2004 of 6,208 to 1,747 in August Rebounding to 3,370 in October 2005, the BDI has been at about the 2,350 to 2,800 range since mid-february Baltic Dry Index (from 1 January 2004 to 5 April 2006) Source: Bloomberg L.P. 12

13 LETTER TO SHAREHOLDERS The Directors believe that the dry bulk shipping industry will be supported by the continued growth in the steel-related industries, especially in China and India, and the resultant preference to steam coal as a result of high crude oil prices. However, it was noted that with the relatively large order books for new bulk carrier vessels compared to scrapping of older bulk carrier vessels in 2005, the expected increase in the size of the global dry bulk fleet might potentially moderate freight rates. The Directors observed that, in general, older bulk carriers not only tend to command lower freight rates compared to younger bulk carriers but they also tend to incur higher maintenance costs and insurance premiums. Furthermore, the Directors observed that the resale value for bulk carriers have been falling for the past 12 months. 5. RATIONALE FOR AND BENEFITS OF THE PROPOSED SALE The Group is principally engaged in ship repair, shipping and marine related activities. The Directors consider ship repair, shipping and marine related activities to be core competencies of the Group. The Proposed Sale will firstly, allow the Company to realise a gain of approximately US$14,200,000 based on the net book value of the Vessels as at 31 December 2005 and secondly and more importantly, enable the Group to renew the Group s fleet of vessels in order to maintain its market presence and competitiveness within the regions where the Group operates. The Proposed Sale is in the ordinary course of the Company s business and is an ongoing fleet renewal exercise of the Group intended to:- (a) (b) (c) Reduce the overall age of the Group s shipping fleet to improve efficiency As at the Latest Practicable Date, the Group currently operates a fleet of 16 vessels, including the two new vessels which the Group recently took delivery of in February 2006 and March The age of these vessels range from one (new vessels) to 23 years and the average age of its fleet is 8.2 years. The Vessels under the Proposed Sale are the oldest vessels among the Group s fleet. Following the new deliveries and Proposed Sale, the average age of the Group s fleet will be reduced to 3.9 years. This is in line with the Group s objective to continually renew its fleet of vessels. Better comply with the International Safety Management Code ( ISM Code ) Compliance with the ISM Code is mandatory for all ship operators. The ISM Code provides guidelines to ensure safety, to prevent human injury and loss of life and to avoid damage to the environment. The ISM Code also requires ship operators to carry out regular inspections to ensure that their vessels comply with the safety guidelines specified. The Directors are of the view that by maintaining a younger fleet of vessels, the Group will be better able to comply with the ISM Code. Ensure cost savings by reducing maintenance and repair costs The maintenance and repair costs for older vessels are higher compared to newer vessels. Hence, in reducing the overall age of its fleet of vessels, the Group expects to be able to enjoy cost savings on maintenance and repair of its vessels. The aggregate maintenance costs of the two Panamax class Vessels, namely M/V Jurong Sea and M/V Cos Angel, for the past three financial years was approximately 109.9% higher than the aggregate maintenance cost of two similar Panamax class vessels in the Group s fleet, namely M/V Cos Intrepid and M/V Cos Joy. M/V Cos Intrepid and M/V Cos Joy are approximately five years in age compared to M/V Jurong Sea and M/V Cos Angel, both of which are 23 years old. 13

14 LETTER TO SHAREHOLDERS Similarly, the aggregate maintenance costs of the two Handymax class Vessels, namely M/V Sea Phoenix and M/V Sea Crane, for the past three financial years was approximately 101.5% higher than the aggregate maintenance cost of two similar Handymax class vessels in the Group s fleet, namely M/V Cos Fair and M/V Cos Glory. M/V Cos Fair and M/V Cos Glory are approximately seven years in age compared to M/V Sea Phoenix and M/V Sea Crane, both of which are 21 years old. 6. USE OF PROCEEDS Following the Proposed Sale, the proceeds received by the Company will be approximately US$34.0 million, which the Group intends to use for general working capital. 7. FINANCIAL EFFECTS OF THE PROPOSED SALE The details of the proforma financial effects of the Proposed Sale are set out below. The proforma financial effects of the Proposed Sale are for illustration purposes only and do not reflect the future financial situation of the Group after the completion of the Proposed Sale. The proforma financial effects of the Proposed Sale are based on the audited consolidated financial statements of the Group for FY2005 and based on a share capital of 2,183,699,952 Shares as at 31 December 2005, adjusted for the Sub-division of shares. 7.1 Share Capital Upon the completion of the Proposed Sale, there will be no change to the issued and paid-up share capital of the Company. 7.2 Earnings Assuming that the Proposed Sale had been effected on 1 January 2005, taking into account the gain on the sale of the Vessels and deducting the net profit generated by the Vessels in FY2005, the effects of the Proposed Sale on the operating profit after tax attributable to Shareholders and on earnings per Share, based on the weighted average number of shares for FY2005 are as follows:- Before the Proposed Sale After the Proposed Sale Operating Profit After Tax attributable to Shareholders (S$ 000) 160, ,563 (2) Basic earnings per Share (cents) Fully diluted earnings per Share (cents) (1) Notes:- (1) The diluted earnings per Share is adjusted for the effects of all dilutive ordinary potential Shares. These dilutive ordinary potential shares in Company are outstanding share options. A calculation is done to determine the number of Shares that could have been acquired at fair value (determined as the average annual market price of the Company s Shares) based on the monetary value of the subscription rights attached to the outstanding Share options. The number of Shares calculated as above is compared with the number of Shares that would have been issued assuming the exercise of the Share options. The difference is added to the denominator as an issuance of ordinary Shares for no consideration. No adjustment is made to earnings (numerator). (2) This is computed after deducting the net profit of approximately S$17.8 million generated by the Vessels for the year in FY2005 and adding back the gain on the sale of the Vessel of approximately S$14.9 million based on the net book value of the Vessels as at 1 January The gain on the sale of the Vessels based on the net book value of the Vessels as at 31 December 2005 would have been S$22.9 million. 14

15 LETTER TO SHAREHOLDERS 7.3 NTA Assuming that the Proposed Sale had been effected on 31 December 2005, the effects of the Proposed Sale on the NTA and NTA per Share as at 31 December 2005 are as follows:- Before the Proposed Sale After the Proposed Sale NTA (S$ 000) 510, ,360 NTA per Share (cents) Before the Proposed Sale After the Proposed Sale Total borrowings (S$ 000) 409, ,839 (1) Shareholders funds (S$ 000) 519, ,717 Gearing (2) (times) Gearing Assuming the Proposed Sale had been effected on 31 December 2005 and that the net proceeds of the Proposed Sale is used for the Group s general working capital, the effects of the Proposed Sale on the Group s gearing and Shareholders funds are as follows:- Notes:- (1) Assumed that no short-term borrowings have been repaid from the proceeds of the sale of the Vessels. (2) Gearing is computed based on the ratio of Total Borrowings to Net Shareholders Funds. The expression Total Borrowings refers to the amounts expressed in Singapore dollars of liabilities (excluding contingent liabilities) arising from borrowings from Shareholder(s), financial institution and non-financial institution lenders. The expression Shareholders Funds refers to the amounts expressed in Singapore dollars represented by the aggregate of the issued and paid-up capital, share premium account, capital reserves, translation reserves, discount on shares issued and revenue reserves of the Group but excluding minority interests. 8. INTERESTS OF CONTROLLING SHAREHOLDER, SUBSTANTIAL SHAREHOLDERS AND DIRECTORS China Ocean Shipping is a Controlling Shareholder of the Company, and as at the Latest Practicable Date, holds 54.12% of the share capital in the Company. In addition, Capt. Wei Jia Fu, Mr Li Jian Hong and Mdm Sun Yue Ying are Directors of the Company and are also members of the managing body of China Ocean Shipping. Mr Ji Hai Sheng, Mr Min Jian Guo, Mr Ye Bin Lin, Mr Li Jian Xiong, Mr Liu De Tian, Mr Lu Cheng Gang and Mr Wang Xing Ru are Directors nominated by China Ocean Shipping. Save as aforesaid, none of the Directors or Controlling Shareholder of the Company has any interest, direct or indirect, in the Proposed Sale. 15

16 LETTER TO SHAREHOLDERS Direct Interest Deemed Interest No. of No. of Directors Shares % (1) Shares % (1) Capt. Wei Jia Fu 1,900, Mr Ji Hai Sheng 2,200, Mr Li Jian Hong 1,300, Mdm Sun Yue Ying 1,400, Mr Wang Xing Ru 190,000 (3) Dr Wang Kai Yuen 1,300, Mr Tom Yee Lat Shing 1,100, Mr Er Kwong Wah (2) 24,000 (3) Mr Lu Cheng Gang (Alternate Director to Capt. Wei Jia Fu) Mr Li Jian Xiong 1,750, (Alternate Director to Mr Li Jian Hong) Mr Ye Bin Lin 1,800, (Alternate Director to Mdm Sun Yue Ying) Mr Liu De Tian 400, (Alternate Director to Mr Wang Xing Ru) 8.1 Directors interests As at the Latest Practicable Date, the Directors interests in the Shares as recorded in the Register of Directors shareholdings were as follows:- Notes:- (1) Based on 2,207,069,954 Shares issued as at the Latest Practicable Date. (2) Mr Er Kwong Wah is deemed interested in 24,000 Shares held by his spouse as at the Latest Practicable Date. (3) Negligible. Save as disclosed above, none of the Directors have any interest in the Shares. Direct Interest Deemed Interest No. of No. of Substantial Shareholders Shares % (1) Shares % (1) China Ocean Shipping (Group) 1,194,565, Company Seletar Investments Pte Ltd 110,400, Temasek Holdings (Pte) Ltd 195,857, Substantial Shareholders interests As at the Latest Practicable Date, the Substantial Shareholders interests in the Shares as recorded in the Register of Members were as follows:- Note:- (1) Based on 2,207,069,954 Shares issued as at the Latest Practicable Date. 16

17 LETTER TO SHAREHOLDERS 9. INDEPENDENT FINANCIAL ADVISER Kim Eng Capital Pte. Ltd. has been appointed by the Independent Directors to advise them in respect of the Proposed Sale. A copy of the letter from the IFA to the Independent Directors, containing their advice in full, is set out in Appendix A of this Circular, and Shareholders attention is drawn to it. After taking into consideration the factors mentioned in its letter in Appendix A of this Circular, subject to the qualifications and assumptions made therein, the IFA is of the opinion that the terms of the Proposed Sale are on normal commercial terms and are not prejudicial to the interests of the Company and the minority Shareholders. 10. STATEMENT OF THE AUDIT COMMITTEE Save for Mdm Sun Yue Ying who will abstain from making any recommendations or voting on the Proposed Sale, Mr Tom Yee Lat Shing, Dr Wang Kai Yuen and Mr Er Kwong Wah, being the other members of the Audit Committee and are Independent Directors in connection with the Proposed Sale, and having considered inter alia, the terms, rationale and benefits of the Proposed Sale, and the advice of the IFA as set out in Appendix A, they are satisfied that the Proposed Sale is carried out on normal commercial terms and are of the opinion that the Proposed Sale is not prejudicial to the interests of the Company and its minority Shareholders. 11. DIRECTORS RECOMMENDATION Having considered inter alia, the Consideration, terms, rationale and benefits of the Proposed Sale, the advice of the IFA as set out in Appendix A and the statement of the Audit Committee set out in Section 10 above, the Independent Directors, Mr Tom Yee Lat Shing, Dr Wang Kai Yuen and Mr Er Kwong Wah, are of the opinion that the Proposed Sale is in the interests of the Company. Accordingly, they recommend that Shareholders vote in favour of the ordinary resolution relating to the Proposed Sale to be proposed at the EGM as set out in the notice of the EGM on page 37 of this Circular. The other Directors being members of the managing body of China Ocean Shipping or Directors nominated by China Ocean Shipping have abstained from making any recommendation on the Proposed Sale at the Board. 12. EXTRAORDINARY GENERAL MEETING An EGM, notice of which is set out on page 37 of this Circular, will be held on Friday, 26 May 2006 at a.m. at Pan Pacific Hotel Singapore, 7 Raffles Boulevard, Marina Square, Pacific 3, Level 1, Singapore for the purpose of considering and, if thought fit, passing with or without any amendment, the ordinary resolution set out in the Notice of EGM on page 37 of this Circular. China Ocean Shipping is a Controlling Shareholder of the Company and interested persons within the meaning of Chapter 9 of the Listing Manual (please see Section 1.2 under Listing Manual and Shareholders Approval in this Circular for more details). Accordingly, China Ocean Shipping will abstain from voting in respect of the ordinary resolution relating to the Proposed Sale at the forthcoming EGM. Capt. Wei Jia Fu, Mr Ji Hai Sheng, Mr Min Jian Guo, Mr Li Jian Hong, Mdm Sun Yue Ying, Mr Wang Xing Ru, Mr Lu Cheng Gang, Mr Li Jian Xiong, Mr Ye Bin Lin and Mr Liu De Tian being members of the managing body of or Directors nominated by China Ocean Shipping will also abstain from voting in respect of the ordinary resolution relating to the Proposed Sale. China Ocean Shipping, Capt. Wei Jia Fu, Mr Ji Hai Sheng, Mr Min Jian Guo, Mr Li Jian Hong, Mdm Sun Yue Ying, Mr Wang Xing Ru, Mr Lu Cheng Gang, Mr Li Jian Xiong, Mr Ye Bin Lin and Mr Liu De Tian have also undertaken to ensure that their respective associates will abstain from voting on the resolution approving the Proposed Sale. In addition, Capt. Wei Jia Fu, Mr Ji Hai Sheng, Mr Min Jian Guo, Mr Li Jian Hong, Mdm Sun Yue Ying, Mr Wang Xing Ru, Mr Lu Cheng Gang, Mr Li Jian Xiong, Mr Ye Bin Lin and Mr Liu De Tian being members of the managing body of or Directors nominated by China Ocean Shipping will abstain from making any recommendation on the Proposed Sale at the EGM. 17

18 LETTER TO SHAREHOLDERS 13. ACTIONS TO BE TAKEN BY SHAREHOLDERS A Shareholder who is unable to attend the EGM and wishes to appoint a proxy to attend and vote on his behalf at the EGM should complete, sign and return the attached Proxy Form in accordance with the instructions printed thereon and as soon as possible and, in any event, so as to arrive at the registered office of the Company at 9 Temasek Boulevard #07-00 Suntec City Tower II Singapore not later than 48 hours before the time fixed for the EGM. The completion and return of a Proxy Form by a Shareholder does not preclude him from attending and voting in person at the EGM if he so wishes to do so, in place of his proxy. A Depositor shall not be regarded as a member of the Company entitled to attend the EGM and to speak and vote thereat unless his name appears on the Depository Registered maintained by CDP pursuant to Division 7A of Part IV of the Companies Act at least 48 hours before the EGM. 14. CONSENTS The IFA has given and has not withdrawn its written consent to the issue of this Circular with the inclusion of its name, its letters to the Independent Directors dated 11 May 2006 as set out in Appendix A of this Circular and all references thereto, in the form and context in which they appear in this Circular. SSY has given and has not withdrawn its written consent to the issue of this Circular with the inclusion of its name and all references thereto, in the form and context in which they appear in this Circular. 15. DOCUMENTS AVAILABLE FOR INSPECTION Copies of the following documents may be inspected at the registered office of the Company at 9 Temasek Boulevard #07-00 Suntec City Tower II Singapore during normal business hours from the date of this Circular up to and including the date of the EGM:- (a) (b) (c) (d) (e) (f) (g) Memorandum and Articles of Association of the Company; Annual report of the Company containing the audited financial statements of the Company and the Group for FY2005 and all statutory notes thereto; Four MOAs dated 27 March 2006 between CSPL and Shenzhen Ocean Shipping and COSCO International Trading; Four letters of guarantee provided by COSCO (H.K.) Shipping Co., Limited in relation to the Proposed Sale; Letters of consent referred to in Section 14 above; Letters of advice from the IFA to the Independent Directors in respect of the Proposed Sale as set out in Appendix A; and Certificates of valuation for each Vessel by SSY. 18

19 LETTER TO SHAREHOLDERS 16. DIRECTORS RESPONSIBILITY STATEMENT The issue of this Circular to Shareholders has been reviewed and approved by all the Directors who (including those who may have delegated supervision of this Circular) have taken all reasonable care to ensure that the facts stated and the opinions expressed (excluding the opinion of the IFA in Appendix A) in this Circular are fair and accurate in all material respects and that no material facts have been omitted which would make any such information misleading in any material respect. The Directors jointly and severally accept responsibility for the accuracy of the information contained in this Circular accordingly. Yours faithfully, For and on behalf of the Board of Directors of COSCO Corporation (Singapore) Limited Mr Ji Hai Sheng Vice Chairman and President 19

20 APPENDIX A LETTER FROM THE IFA TO THE INDEPENDENT DIRECTORS KIM ENG CAPITAL PTE. LTD. 9 Temasek Boulevard #39-00 Suntec Tower Two Singapore May 2006 The Independent Directors COSCO Corporation (Singapore) Limited 9 Temasek Boulevard #07-00 Suntec City Tower II Singapore Dear Sirs PROPOSED SALE OF FOUR VESSELS BY COSCO (SINGAPORE) PTE LTD, A WHOLLY-OWNED SUBSIDIARY OF THE COMPANY, TO SHENZHEN OCEAN SHIPPING CO. LTD AND COSCO INTERNATIONAL TRADING COMPANY, CHINA 1. INTRODUCTION Kim Eng Capital Pte. Ltd. ( KEC ) has been appointed as the independent financial adviser to advise the Independent Directors in respect of the Proposed Sale. This letter has been prepared for the use of the independent directors of the Company (the Independent Directors ) and is to be incorporated into the circular to the shareholders of the Company (the Shareholders ) dated 11 May 2006 (the Circular ). Unless otherwise defined herein, all terms in this letter shall bear the same meaning as in the Circular. 1.1 The Proposed Sale On 28 March 2006, the Directors announced that the Company s wholly-owned subsidiary, CSPL, had on 27 March 2006, entered into the MOAs with Shenzhen Ocean Shipping and COSCO International Trading for the sale of the Vessels for an aggregate consideration of US$34,000,000 (equivalent to approximately S$55,049,400 based on the relevant exchange rate of US$1.00:S$ as at 27 March 2006, being the date of the MOAs). The Consideration will be satisfied entirely in cash. Pursuant to the MOAs, Shenzhen Ocean Shipping and COSCO International Trading have agreed to purchase from CSPL the Vessels, namely M/V Sea Phoenix, M/V Sea Crane, M/V Jurong Sea and M/V Cos Angel. Further details of the Vessels are set out in Section 3.1 of the Circular. Shenzhen Ocean Shipping and COSCO International Trading are companies incorporated in the PRC. Shenzhen Ocean Shipping is principally engaged in the business of shipping and ship chartering and COSCO International Trading is principally engaged in the business of general trading, import and export. As at the Latest Practicable Date, China Ocean Shipping directly and indirectly holds 100.0% and 50.0% of the registered capital of Shenzhen Ocean Shipping and COSCO International Trading respectively. The remaining shareholder of COSCO International Trading is Petro China Company which is an unrelated third party. 20

21 APPENDIX A LETTER FROM THE IFA TO THE INDEPENDENT DIRECTORS 1.2 Requirements of the Listing Manual Under Rule 906 of the Listing Manual, the Company is required to obtain the approval of Shareholders if it proposes to enter into an interested person transaction of a value equal to or more than 5% of the latest audited consolidated NTA of the Group. A transaction will constitute an interested person transaction if it is entered into between an entity at risk and an interested person. As at the Latest Practicable Date, the Company holds 100.0% of the shares in CSPL, which renders CSPL an entity at risk. As at the Latest Practicable Date, China Ocean Shipping holds 54.12% of the Shares in the Company and is considered a Controlling Shareholder of the Company. Further details of the shareholding interest of China Ocean Shipping are set out in the Section 8 to the Circular. As at the Latest Practicable Date, China Ocean Shipping directly and indirectly holds 100.0% and 50.0% of the registered capital of Shenzhen Ocean Shipping and COSCO International Trading respectively. Shenzhen Ocean Shipping and COSCO International Trading are as such considered associates of China Ocean Shipping, and are therefore considered to be interested persons within the meaning of Chapter 9 of the Listing Manual. As the Proposed Sale is between CSPL, an entity at risk, and interested persons, namely Shenzhen Ocean Shipping and COSCO International Trading, it is considered an interested person transaction within the meaning of Chapter 9 of the Listing Manual. Based on the Group s audited financial statements as at 31 December 2005, its NTA was approximately S$510.3 million and 5% of its latest audited consolidated NTA would be approximately S$25.5 million. As the Consideration of approximately S$55.0 million exceeds 5% of the latest audited consolidated NTA of the Group as at 31 December 2005, approval of the Shareholders for the Proposed Sale is therefore required pursuant to Rule 906 of the Listing Manual. 1.3 Appointment of KEC In respect of the above, KEC has been appointed to advise the Independent Directors in respect of the Proposed Sale, in particular, on whether the terms of the Proposed Sale are on normal commercial terms and are not prejudicial to the interests of the Company and the minority Shareholders. This letter, which sets out our advice to the Independent Directors, will form part of the Circular which provides, inter alia, details of the Proposed Sale and the recommendation of the Independent Directors thereon. 2. OUR TERMS OF REFERENCE KEC was not a party to the negotiations entered into by the Company in relation to the Proposed Sale, nor were we involved in the deliberations leading up to the decision on the part of the Directors to enter into the MOAs. The purpose of this letter is to form an independent opinion on whether the terms of the Proposed Sale are on normal commercial terms and are not prejudicial to the interests of the Company and its minority Shareholders. It is not within our terms of reference to comment on the commercial merits and/or risks of the Proposed Sale, nor is it within our terms of reference to comment on the financial merits and/or risks of the Proposed Sale where the assessment of such financial merits and/or risks involves our reviewing of non-publicly available financial information of the Company and/or the Vessels. It is not within our terms of reference to compare the relative merits of the Proposed Sale vis-à-vis any alternative transactions previously considered by the Company or transactions that the Company may consider in the future, and as such, we do not express an opinion thereon. The evaluation of commercial and financial merits and/or risks of the Proposed Sale are solely the responsibility of the Directors, although we may draw upon their views in arriving at our recommendation. 21

22 APPENDIX A LETTER FROM THE IFA TO THE INDEPENDENT DIRECTORS In the course of evaluating the Proposed Sale, we have reviewed various documents, including the following:- (a) (b) (c) (d) (e) (f) the MOAs; the four letters of guarantee provided by COSCO Hong Kong in relation to the Proposed Sale; the Circular; the valuation certificates dated 23 March 2006 on the Vessels, by the independent valuers, SSY (the Valuation Certificates ); other relevant information relating to the Company and the Vessels provided to us both verbally and in writing by the Directors and management of the Company; and publicly available information relating to the Company and the Vessels. We have also held discussions with certain members of the Board of Directors and management of the Company and relied on certain information, both verbally and in writing, provided to us by the aforesaid parties and by the Company s auditors and solicitors. We have not independently verified such information and accordingly cannot and do not warrant the accuracy and completeness of such information. Nevertheless, the Directors have confirmed to us that upon making all reasonable enquiries and to the best of their knowledge and beliefs, the information which has been disclosed to us constitutes a full and true disclosure, in all material respects, of all material facts on the Proposed Sale and there is no other material information the omission of which would make any of the information disclosed to us inaccurate, incomplete or misleading in any material respect. We have also made reasonable enquiries and used judgment in assessing such information and have found no reason to doubt the accuracy of such information. We have further assumed that all statement of fact, belief, opinion and intention made by the Directors have been reasonably made after due and careful enquiry. Accordingly, no representation or warranty, express or implied, is made and no responsibility is accepted by us concerning the accuracy, completeness or adequacy of all such information. In addition, the terms of our reference do not require us to express, and we do not express a view on the future growth prospects and earnings potential of the Company. We are therefore not expressing any opinion herein as to the prices at which the Shares of the Company may trade upon the completion of the Proposed Sale or on the future financial performance of the Company after the Proposed Sale. Our recommendation, as set out in this letter, is based on the market, economic, industry, monetary and other conditions prevailing on, and the information made available to us as of the Latest Practicable Date. We assume no responsibility to update, revise or reaffirm our recommendation in the light of any subsequent development after the Latest Practicable Date that may affect our recommendation contained herein. Our opinion should be considered in the context of the entirety of this letter and the Circular. In rendering our advice and giving our recommendation, we have not had regard to the specific investment objectives, financial situation or unique needs and constraints of any individual Shareholder or any specific group of Shareholders. As different Shareholders would have different objectives, we would advise the Independent Directors to recommend that any individual Shareholder who may require specific advice in relation to his investment portfolio should consult his stockbroker, bank manager, solicitor, accountant or other professional adviser. 22